Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd

[2002] NSWCA 287

CITATION:	Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287 revised - 10/10/2002
FILE NUMBER(S):	CA 40429/02
HEARING DATE(S):	13/08/02
JUDGMENT DATE:	2 September 2002
PARTIES :	Westpoint Finance Pty Ltd (Claimant/Appellant) Chocolate Factory Apartments Ltd (Opponent/Respondent)
JUDGMENT OF:	Handley JA at 1; Young CJ in Eq at 2; Foster AJA at 74

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	2583/02
LOWER COURT JUDICIAL OFFICER :	Hamilton J

COUNSEL:	D E Grieve QC (Applicant) F Kalyk (S) (Opponent)
SOLICITORS:	Robinson Beale Horton McMinn (Applicant) Frank G Kalyk (Opponent)
CATCHWORDS:	MORTGAGES- Mortgagor may obtain an injunction that no money is owing under a mortgage. However, once it appears that there is an arguable case that something is owing, the mortgagee is entitled to pursue its rights under the mortgage. EQUITY- REMEDIES- INJUNCTIONS- Mortgagor's right to seek injunction limited. (D)
CASES CITED:	Adams v Bank of New South Wales [1984] 1 NSWLR 285 Colin D Young Pty Ltd v Commercial & General Acceptance Ltd (NSWCA 24.8.1982) Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391 Harvey v McWatters (1948) 49 SR (NSW) 173 Kennedy v General Credits Ltd (1982) 2 BPR 9456 Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225 Rajah Kishendatt Ram v Rajah Mumtaz Ali Khan (1879) LR 6 Ind App 145 Thomas v Hollier (1984) 156 CLR 152 Weld-Blundell v Synott [1940] 2 KB 107
DECISION:	Appeal allowed. Injunction discharged.

CA 40429/02
ED 2583/02

HANDLEY JA
YOUNG CJ in EQ
FOSTER AJA

Monday 2 September 2002

WESTPOINT FINANCE PTY LTD v CHOCOLATE FACTORY APARTMENTS LIMITED

Judgment

1 HANDLEY JA: I agree with Young CJ in Eq.

2 YOUNG CJ in EQ: This is a concurrent hearing of an application for leave to appeal, and if leave is granted, the appeal itself against a judgment of Hamilton J given on 17 May 2002. By the orders he made consequent upon his reasons for judgment his Honour granted an interlocutory injunction freezing certain funds, the right to which was in dispute between the parties.

3 The underlying factual situation is complex, but I will endeavour to simplify it as much as I can. Unfortunately, whenever one endeavours to do this, one tends to omit some material facts, but it is preferable so to err than to make the reading of these reasons even more difficult than will otherwise be the case.

4 There is a development of a factory at Bridge Road, Stanmore into residential units. The project was promoted by a group of companies with the name Westpoint which include Westpoint Management Ltd, which at all material times has been the manager of the project pursuant to a management agreement of 24 December 2001, Westpoint Corporation Pty Ltd, Westpoint Constructions Pty Ltd and the defendant Westpoint Finance Pty Ltd. All these Westpoint companies appear to be based in Western Australia. I will refer to them by the distinctive part of their names. "Corporation" is described in many documents as the project manager, "Constructions" as the builder, and "Finance" as the financier.

5 The plaintiff was established as what is described as the project vehicle. Three companies, Chocolate Factory (Charterbridge Davey) Limited, Chocolate Factory (Winthrop) Limited and Chocolate Factory Investment Limited, each controlled by different groups, marketed shares to secure monies to be invested in the project. At all material times there were five directors of the plaintiff, Messrs Norm Carey or Lindsay Coleman and Richard Beck were Westpoint representatives, Donald Church was the representative of Chocolate Factory (Charterbridge Davey) Ltd, Geoff Harris was the nominee of Chocolate Factory Investment Ltd and a Mr Whitehead was the representative director of Winthrop. However, the matter is complicated by the fact that Mr Beck was also a director of Chocolate Factory (Charterbridge Davey) Ltd and Chocolate Factory (Winthrop) Ltd was controlled by the Westpoint Group.

6 At all material times up until 12 April 2002, the accounts for the plaintiff (as well as those of the defendant) were administered by Westpoint Group account executives.

7 The story can be taken up in November 2001. At this time, the prime source of finance was from the Bank of Western Australia.

8 In his affidavit Mr Church says that Management failed to arrange sufficient construction funding to permit the plaintiff to meet its obligations to Constructions, the builder. In particular, there was only provision in the building contract for a 5% retention allowance, whereas the finance contract with the Bank of Western Australia was for a 15% retention. Mr Church then says, "Accordingly, in or about November 2001, … Constructions proposed that an arrangement be entered whereby certain monies payable under the construction contract were to be secured to … Constructions."

9 A circular minute of the directors of the plaintiff dated 16 November 2001 was signed only by Mr Harris, but it must be taken as genuine as it is annexed to Mr Church's affidavit. The minute notes:

"It is to be noted that at a meeting of the Directors of the company held on 9 August 2001 it was agreed to enter into a mortgage with Westpoint Finance Pty Ltd, on ostensibly the same terms and conditions as that entered into with Waltus Property Finance Ltd and with an interest rate of 15.5%, to fund the upgrades to the level 4 apartments and to provide the Builder with security for the additional 10% retention that was being withheld by the Bank of Western Australia Ltd in accordance with its finance approval. …".

The resolution went on to say that the amount to be secured by the mortgage would be $2,345,000 being essentially $1.713 million for the 10% retention, $181,229 for upgrades and $450,000 for level 4 upgrades.
[Other documents show that "ostensibly" was a copyist's error for "substantially"]

10 On 19 November 2001, the plaintiff entered into a loan agreement with Finance. The loan agreement provided that there be various conditions precedent to the making of the loan, one of which was the borrower, that is the plaintiff, delivering to Finance, a certified copy of a board resolution to enter into the transaction. Clause 3 was headed "Provision of Advance" and was as follows:

"Subject to the prior and continuing satisfaction of the conditions precedent … , the lender shall, upon request by the borrower, provide the advance to the borrower by way of cash advance on the drawdown date on the terms and subject to the conditions set out in this deed. The advance will be provided to the borrower by way of cheque drawn by the lender payable to the borrower or as the borrower directs in writing."

The drawdown date was left blank in the schedule, at least it is in the copy which was exhibited to Mr Church's affidavit.

11 On the same day a mortgage in the Torrens system form, was executed in which the plaintiff was described as "the Customer", though it was also the mortgagor and covenant (b) Thirdly provided:

"The mortgagor has agreed to enter into this mortgage in order to provide collateral security to the mortgagee in connection with advances to the Customer from time to time including the advance of the sum of $2,345,000.00 made pursuant to the terms of the loan agreement issued by the mortgagee dated ….. and any further variations thereof. … ".

The document also said:

"The mortgagor hereby acknowledges receipt of the principal sum referred to in the loan agreement …".

12 It would seem that the money due under the mortgage was repayable in the way in which the loan agreement specified, or if no manner was so specified, on demand.

13 It would then appear that a further $1.216 million was advanced by the Bank of Western Australia. On 14 December 2001, a circular resolution appears to have been signed by the directors of the plaintiff (again the document before the Court is only signed by one director, Mr Whitehead, but, again, it must be taken as genuine as it is annexed to Mr Church's affidavit). The resolution notes that there is a problem in that the contract with the Bank of Western Australia provided for a 15% retention by that Bank, whereas the construction contract provided for only a 5% retention. It then recited that the Bank would be releasing a further $1.216 million and then continued:

"It was further noted that the 10% differential in the retention percentage had been secured as part of the third mortgage provided by Westpoint Finance Pty Ltd and that any funds released would be remitted to Westpoint Finance Pty Ltd in reduction of the amount secured by that mortgage rather than the contractor directly.
…

"We the undersigned being all the directors of the company entitled to attend meetings of the board of directors and to vote at such meeting RESOLVE THAT the company agree to the request of the Bank of Western Australia Ltd to release the amount of $1,216,000.00 …".

14 What material there is shows that the Bank released the $1.216 million on 10 December 2001 and that this money went to Finance.

15 On 1 February 2002, one Ed Eikelboom, who appears to be the financial accountant of Management, sent an e-mail to Patrick Salis, who appears to be the accounting executive in the Westpoint organisation charged with dealing with all the accounts as follows:

"The following entries need to be passed through your system as at December 01 to effect the payment of part of the debt owing to you by Chocolate Factory Apartments …".

The instructions then were to make a series of journal entries in the books of the plaintiff, Corporation and Finance so as to show that Finance had lent to the plaintiff $519,190.48. The journals were duly made up in accordance with that instruction and print-outs of the electronic journal appear as Exhibit GJR 2.

16 Mr Church's affidavit annexes a letter sent by Mr Carey to the plaintiff of 28 March 2002 which contains 13 pages of annexures and schedules. The covering letter says that the construction of the project has been concluded and enclosed is a full accounting analysis, "You should note that the summary separates the amounts owing into 'amounts not in dispute' and 'amounts in dispute'."

17 The first annexure purports to be a certificate which, had it been in the proper form and executed in the proper manner, would have been prima facie evidence of the facts so stated in accordance with clause 16(e) of the loan agreement. However, it purports to be a certificate on behalf of Management, not Finance and this Court ruled that it did not have that effect. The second sheet contains three columns, the first a column dealing with monies owing to Constructions under the building contract, the second dealing with monies owing to Finance under the loan agreement, and the third a consolidation.

18 The present case is between the plaintiff and Finance, though after Hamilton J's interlocutory judgment was delivered, the plaintiff filed a statement of claim in which there were three defendants, respectively Finance, Constructions and Management. For present purposes, however, one merely gets confused if one looks at the figures involving any dispute between the plaintiff and Constructions except in so far as one needs to look at it to see the position between the plaintiff and Finance.

19 Having said that, I should, however, note that the total owing to Constructions, if one allowed all the amounts claimed on either side in full and accepted Westpoint's figures, was $626,876.06. The column dealing with Finance claimed that there was $1,155,663.32 owing and not in dispute, namely, $519,190.48 as per schedule 4, $593,212.31 for approved variations and $43,260.53 for interest.

20 Schedule 4 claimed $1,697,213.90 for 10% retention on claims 1 to 14 and credited the amount received from the Bank of Western Australia of $1,216,000 leaving a balance of $481,213.90, to which was added $37,976.58 itemised as "31/12/01 other amounts financed & remitted to W P Constr." making a grand total of $519,190.48.

21 The $593,212.31 was itemised in schedule 5 as being three variations, 1, 2 and 3 of respectively $229,204.85, $222,719.33, $132,905.25 plus various amounts of interest. To this was added construction variation No 4, $8,382.88 plus interest. The principal of the four variations was $593,212.31. The interest totalled $43,260.53 so that one gets the amount in the original middle column.

22 Mr Church responded in his affidavit that the plaintiff claimed that Constructions was not owed any money but in fact owed the plaintiff $450,948.63. This sum was calculated by taking as the commencement point the total in column 1, namely $626,876.06, adding additional liquidated damages and then deducting the amounts claimed by Constructions which were disputed by the plaintiff. The significant matter is, however, that the $626,876.06 is taken as a starting point.

23 Paragraph 17 of Mr Church's affidavit then said:

"Further, the plaintiff disputes the quantum of the amounts claimed by the defendant as per its letter of 28 March 2002 … in the following respects:
(a) the plaintiff denies that the amount, if any, advanced in item 3 of the schedule 'approved variations payable under the Westpoint Finance third mortgage' was the amount of $593,212.31. The defendant relies in this respect upon schedule 1 to annexure E hereto and upon the defendant's facsimile of 16 April 2002 and enclosures, a copy of which is annexed and marked 'T';
(b) the plaintiff denies that it is obliged to pay the amount of $37,976.58 referred to in schedule 4 of annexure E hereto;
(c) the plaintiff denies that interest if any is to be calculated upon a principal of $593,212.31 as referred to in schedule 5 of annexure E hereto if any advance has been made."

24 It will be observed that:

(1) The denials do not extend to the $519,198.48 except the item which I have already detailed of $37,976.58. In other words, there was no dispute as to the $481,213.90 which is $519,190.48 minus the disputed amount.

(2) The quantum of the principal of $593,212.31 was said to be disputed, but no details were given as to the dispute.

(3) The third denial was that any interest was to be calculated on that amount rather than on some other amount.

25 Underlying the denials was a more fundamental matter, and that is that the plaintiff alleged that no advance had ever been made under the mortgage because no monies had ever been paid by cheque in accordance with clause 3 of the loan agreement.

26 On 7 May the plaintiff issued a summons for a declaration that no monies had been advanced by Finance to it pursuant to the loan agreement, for an order for delivery up of the mortgage (which had actually been registered); in the alternative, for a declaration that the monies secured by the mortgage did not exceed a figure of approximately $900,000. Leave was given to abridge the time for service and the summons was made returnable before the Court on 8 May at 2 pm. It came on for interlocutory hearing before Hamilton J on 16 and 17 May and his Honour gave judgment on the latter day.

27 The urgency was prompted by the fact that units were being sold, monies were coming in, Finance was claiming the monies as mortgagee, and the plaintiff was disputing its title. As Hamilton J said in paragraph 1 of his judgment, the building consisted of 87 residential units which have been substantially completed "and of the units, about 20 remain to be sold. Last week and this week there have been the completions of sales of various units and, on those completions, sums totalling about $2 million have been or are to be received." His Honour held that neither the argument that the mortgage acknowledged receipt of the principal sum, nor the journal entries, established the loan. He said in paragraph 12 of the judgment:

"12. The question then becomes whether the plaintiff has an arguable case that no moneys were owing under the mortgage on the basis that it is not established on the evidence that any moneys had been advanced under the mortgage and bearing in mind the mechanical provisions of clause 3. In my view, there is an arguable case to this effect. It is arguable that the necessity for a written direction by the plaintiff was specified not only to permit the nomination of an alternative payee of the advance, but also to protect the plaintiff, so that liability for advances under the loan agreement can be imposed on it only in respect of moneys it actually receives or in respect of which it has given a written direction. There is on the evidence no request or assent by the plaintiff in respect of the payment of any advance to the defendant or any other person. No doubt in appropriate cases journal entries can effect a payment but there is a serious question as to whether in this case they do effect payments to the plaintiff or payments which are advances under the mortgage. In my view it is certainly arguable that the resolution of 16 November 2001 forms no part of the contract between the plaintiff and the defendant and cannot be relied on without more as justifying the defendant in paying moneys to Westpoint Constructions on the plaintiff's account.
"13. It seems to me, considering the balance of convenience, that the plaintiff has established that it may have difficulty in recovering considerable sums of money from the defendant if paid to that company. …".

28 The short minutes that were brought in provided that all proceeds of sale would be paid to the defendant's solicitors, to be invested, that partial discharges of mortgage be given to enable each sale to be completed and that the proceedings continue by way of pleadings.

29 The Court was told that about $1.7 million has since been paid to the defendant's solicitors and has been invested in accordance with his Honour's orders. This is rather unfortunate because the mortgagee at that time only claimed $1,194,000. Accordingly, at the end of the argument, we made an order releasing some monies to the defendant, continuing to freeze the disputed sum of $675,000 and releasing the surplus over $1,194,000 to the plaintiff.

30 I should note that on 22 August 2002, a consent order was made in effect substituting $1,294,000 for the $1,194,000 referred to in the previous paragraph. This made the disputed sum $775,000.

31 These are the reasons for our decision on the case generally with particular emphasis on the two points undecided when the oral argument finished, namely:

(a) the fate of the amount in dispute; and

(b) what order for costs should be made in respect of the proceedings at first instance.

32 It is important to realise that the present proceedings were proceedings between a mortgagor and a mortgagee. Mortgagors have relatively few rights to proceed against their mortgagee. Once the mortgagee's powers have arisen, the mortgagor is only entitled to restrain the exercise of those powers on very limited grounds. A dispute as to the quantum of the mortgage debt where there is no dispute as to whether there has been a default does not entitle a mortgagor to an injunction: Harvey v McWatters (1948) 49 SR (NSW) 173.

33 I should add that there is no right to an interlocutory account, and a mortgagor is not entitled to a partial account. A mortgagor cannot pick out one or more aspects of the accounts between the parties and litigate that alone. The Court of Appeal has decided this on numerous occasions; see eg Colin D Young Pty Ltd v Commercial & General Acceptance Ltd (24 August 1982, unreported, C/A); Kennedy v General Credits Ltd (1982) 2 BPR 9456 and Adams v Bank of New South Wales [1984] 1 NSWLR 285.

34 To succeed then, the plaintiff had to show that (a) there is an arguable case; (b) that the balance of convenience favours the grant rather than the refusal of the injunction; and (c) damages are not an adequate remedy. This case concerns (a).

35 Accordingly, unless the plaintiff could convince the Court on a prima facie basis that nothing was owing under the mortgage, its application for an interlocutory injunction had to be dismissed.

36 Thus the question before the Judge and before us was whether the plaintiff had shown an arguable case as at the date of filing of the summons that no money was owing under the mortgage.

37 There are some facts which tend in this direction. The most significant of these is that there was no advance by cheque as specifically required under clause 3 of the loan agreement.

38 The prime answers given by the defendant before the trial judge were that (a) there was an estoppel by the recital in the mortgage; and (b) the advance had been made to the mortgagor by a series of journal entries which reduced its debt to Constructions. Both were unsustainable on the existing evidence as discrete answers to the claim that no money was owing under the mortgage. They were both disposed of by Hamilton J in a perfectly correct fashion.

39 However, the written submissions of Mr Grieve QC who appeared for Finance before Hamilton J went further. He submitted that the whole of the circumstances showed that there must be an estoppel by convention. It appears that this was overlooked by the learned Judge who did not rule on it. It is thus necessary to turn one's attention to that doctrine.

40 In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 244, five Justices of the High Court said:

"Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying."

41 Accordingly, it is necessary to examine the evidence to see the strength of the case on conventional estoppel.

42 There is some difficulty in performing this exercise because at the relevant times all the books of account were being handled by the employees of the Westpoint group and there were some common directors between the various companies on both sides of the record. However, because of the plaintiff's own minutes and Mr Church's affidavit, the exercise can be done.

43 The minutes which bear a date 4 December 2001 which are annexure C to Mr Church's affidavit of 7 May 2002, show that Chocolate Factory Apartments Ltd knew that the $1.216 million to be received from the Bank of Western Australia Ltd would be paid to Finance in reduction of the amount secured by its mortgage rather than to Constructions.

44 Mr Kalyk, solicitor who appeared for the respondent plaintiff in this Court, argued that the mortgage was only ever a security, it was not a document pursuant to which any monies were lent and all that was meant by that minute was that the security provided by the mortgage would be lessened. However, with respect, it is impossible to accept that submission, because if no monies were lent under a mortgage in this form, there is no security anyhow, and secondly, it is impossible on that basis to see why a cash payment of $1.216 million would be made to Finance as mortgagee.

45 Then as I have indicated earlier, by letter of 28 March 2002 Mr Carey sent to the plaintiff his calculations as to what was owing. Mr Church in the affidavit which I have just mentioned, raised very limited objections to those calculations. He accepted as a starting point that Constructions was owed $626,876.06, but asserted that $1,077,824.69 had to be deducted from that figure leaving a balance in favour of the plaintiff.

46 However, in relation to the claim by Finance, apart from the veiled objection caught up in the words "amount, if any, advanced" there is only a denial of the $37,976.58 claim, and otherwise merely an indication that the plaintiff cannot accept that the actual figure owing is $593,212.31. When one looks at schedule 4 on page 26 of Mr Church's affidavit, one can see that Finance's claim is for (a) three sets of 10% retention monies arising under Constructions' claims 1-16 totalling $1,697,213.90; (b) "other amounts financed" $37,976.58, a total of $1,735,190.48 less the $1,216,000 received from the Bank of Western Australia, leaving a balance of $519,190.48. There is not one word of denial of this claim other than item (b). Thus there is $481,213.90 which was claimed by Finance which was not in dispute.

47 Care must be taken to separate any disputed claim by Constructions against the plaintiff from the claims of Finance against it. The claims of Finance were virtually (a) the $519,190.48 claim; and (b) the $539,212.31 claim (there was also a third claim for $43,260.53 interest which was denied but this could be put aside for the moment). Where a claim is made by one party and only partially answered in circumstances where, as in the present case, one would expect there to be a full answer if one was available, a court can take into account that there has been no answer when one was required; see Thomas v Hollier (1984) 156 CLR 152, 157 per Gibbs CJ.

48 The affidavit of Mr Rundle sworn on behalf of the appellant, said in paragraph 11 that Constructions received payments from Bankwest totalling $14,262,666.91 and the balance $1,735,190.40 from Finance. He says the payments from Finance were made by the journal entries in Exhibit GJR 2. There was no reply to this affidavit, presumably because it was sworn the day before the hearing. However, what it states is almost uncontestable. The plaintiff does not have any figures to rebut it and so the best it can do is in effect to say that it does not know and cannot admit that the total amount was advanced, and that the journal entries do not bind it. It says that up until 12 April 2001 when the majority allowed the minority to sue it in this action, the accounting was under the control of Westpoint and it is thus not certain of the amounts involved.

49 Whilst, of themselves the journal entries are not persuasive as they were made by people in the Westpoint camp, they add to the case that there was a convention between the parties that Finance would provide finance for the project and that even though no cheques were drawn as required by the loan agreement, Finance did advance monies to the plaintiff by reducing its debt to Constructions so that after allowing for the payment of $1.216 million by the Bank of Western Australia at least $481,213.90 was still owing to Finance when the proceedings were commenced.

50 On the evidence before the Court the plaintiff did not establish a prima facie case that no monies were owing under the mortgage. Accordingly its claim for interlocutory relief should have been dismissed.

51 It follows that leave to appeal should be granted, the appeal allowed and the interlocutory injunction discharged.

52 However, I cannot conclude these reasons without some reference to the orders that were made and the orders which must now be made.

53 After making the decision he did, the orders the Judge made were, with respect, appropriate with two possible exceptions: (a) it does not appear that any undertaking as to damages was taken; and (b) the order was open-ended. The mortgagee should have been asked what it claimed under the mortgage, and the orders should have been limited to the amount claimed so that any surplus from sales of units should have been payable to the plaintiff.

54 The usual rule where there is a dispute as to the amount owing under the mortgage is that the mortgagee can require as the price of a discharge that the mortgagor pay the amount reasonably demanded for principal, interest and costs to date plus a reasonable sum to cover the costs of taking the accounts: Project Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 11,225.

55 We were informed that approximately $1,700,000 had been paid into the mortgagee's solicitor's trust account under Hamilton J's orders. At the end of the oral hearing we ordered that $519,000 be paid out to the mortgagee, the balance over $1,194,000 be paid out to the mortgagor, and that the remaining sum of $675,000 and the accrued interest be retained pending our further reasons.

56 On 22 August 2002, by consent, the orders were varied to substitute $1,294,000 for $1,194,000 which had the effect of increasing the remaining sum to $775,000.

57 Accounts will have to be taken between mortgagor and mortgagee. These may be taken as an adjunct in the proceedings in which Constructions is also a defendant, or they may be taken separately before the other issues are determined. Although the mortgage has been discharged, accounts can still be taken between mortgagor and mortgagee: Adams v Bank of New South Wales [1984] 1 NSWLR 285, 295.

58 There is a suggestion in some texts that, in lieu of account, a mortgagor, after discharge, may sue the mortgagee at law under the indebitatus count of money had and received. I do not consider that such an action lies, at least unless there are accounts stated. A mortgagee holds any surplus on trust for subsequent mortgagees and the mortgagor. In Rajah Kishendatt Ram v Rajah Mumtaz Ali Khan (1879) LR 6 Ind App 145, 160, Sir Robert Colville, in giving the reasons of the Privy Council said:

"The effect of a sale under a power of sale is to destroy the equity of redemption in the land, and to constitute the mortgagee exercising the power a trustee of the surplus proceeds, after satisfying his own charge, first for subsequent incumbrancers, and ultimately for the mortgagor."

See also Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391 at 395; Weld-Blundell v Synott [1940] 2 KB 107, 115 and Adams v Bank of New South Wales supra at 299. The same principle applies if a sale under some arrangement between the parties results in an apparent surplus in the hands of the mortgagee.

59 It was pressed on us that whilst we could take the view that it was clear that at least $481,213.90 was owing, there was a bona fide dispute as to the $775,000 retained in the fund.

60 Once it was established that at least $481,213.90 was owing under the mortgage, the mortgagor was not entitled to an interlocutory injunction to restrain the mortgagee from exercising its rights and powers under the mortgage.

61 The same result would follow if the Court ignored the technical rules of mortgage law and dealt with the case on its "merits".

62 Because Hamilton J did not deal with the claim of conventional estoppel, this Court has to itself evaluate whether in all the circumstances, particularly in the light as to whether or not there is an arguable case, an interlocutory injunction should be granted.

63 The Court must be careful not to confuse the disputes between Constructions and the plaintiff on the one hand, and that with Finance on the other. The only matters of dispute raised against Finance are (a) that no monies were actually advanced because of clause 3 of the loan agreement – a matter I have disposed of at this stage of the case when dealing with the dispute as to the $519,000; (b) that there is only a dispute as to the total of the $539,000 because the respondent was not in a position to have an independent audit of the variations claimed by Constructions and paid by Finance.

64 However, once it is assumed, as it must be in the present state of the evidence, that whatever was claimed by Constructions was paid by Finance, the claim of Finance to be reimbursed that sum is of a high order. There is no material to suggest that the amount claimed was not properly paid by Finance to Constructions. Indeed, it must be remembered that once the principal point that no monies had been advanced at all because of non-compliance with clause 3 of the loan agreement was disposed of, there were only minimal disputes as to the amount owing. Whatever may be found to be the true position between the plaintiff and Constructions in a suit between mortgagor and mortgagee their disputes were not enough to warrant the Court restraining the mortgagee from receiving the proceeds of the sale of units in accordance with the mortgage.

65 The only remaining point is the order for costs of the proceedings at first instance.

66 Although costs are always in the discretion of the Court and each case is different, the basic guideline to costs on interlocutory applications for an injunction is that where the plaintiff succeeds costs should be costs in the cause, but an unsuccessful plaintiff should pay the costs.

67 The rationale for the guideline is that as the Court does not evaluate the merits of the dispute, the granting of an interlocutory order merely indicates that the Court has preserved the subject matter of the dispute until the hearing. Those costs were incurred in a necessary step in the overall litigation and should be dealt with in accordance with the final decision. However, if the applicant loses the interlocutory injunction application, the ordinary rule that the loser pays the costs should apply.

68 There are, of course, many situations where the guideline will not be applied, particularly where the plaintiff has shown an arguable case but the Judge has decided that on the balance of convenience, the interlocutory application should not be granted. In many such cases it is appropriate to order that costs be costs in the cause.

69 In the instant case the defendant/appellant should have succeeded before the trial judge. It, of course, may in any event add its costs to its mortgage and the mortgage was still in esse at the date of the hearing before Hamilton J, though it has now been discharged.

70 In my view the guideline should be applied in the instant case. The appellant should have succeeded before the trial judge and should have got its costs. The fact that it is a mortgagee puts it in an a fortiori position.

71 At the end of the oral hearing as varied by the consent order of 22 August 2002, the Court ordered:

(1) That leave to appeal be granted.

(2) That the appeal be allowed.

(3) That the injunction granted by Hamilton J be discharged as from 13
August 2002.

(4) Order that the respondent pay the appellant's costs of the appeal, but if qualified it is to have a certificate under the Suitors' Fund Act.

(5) Note that the amount over and above the sum of $1,294,000 held
by the solicitors pursuant to the order of Hamilton J be paid out to the respondent and that the sum of $519,000 be paid out to the appellant; the remaining be retained pending further order of the Court.

72 The Court then reserved its decision as to the $675,000 later amended by consent to $775,000 and the costs before Hamilton J.

73 In view of what I have said, the Court should now order that the remaining monies held by the solicitors pursuant to the orders of Hamilton J be paid out to the appellant (without prejudice to any rights that the respondent may have in proceedings for account), and the respondent should be ordered to pay the appellant's costs of the motion for interlocutory injunction before Hamilton J.

74 FOSTER AJA: I also agree with Young CJ in Eq.

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